High street rental rivals Thorn and Granada are preparing to sue the government for up to #400m in insurance premium tax, claiming that the two-tier system amounts to an illegal turnover tax on retailers.
Lawyers for the two businesses are preparing a case following resolution of a dispute between Customs & Excise and travel agent Lunn Poly. The Appeal Court in February ruled Customs’ two-tier insurance premium tax regime for travel agents was illegal under European law.
Customs confirmed it would not appeal against the decision, clearing the path for electrical retailers – which, like travel agents, are subject to a punitive 17.5% tax rate – to try to obtain a similar ruling.
The standard rate of insurance premium tax is just 4%.
But Customs has already indicated it will dig its heels in over the issue.
A briefing note issued at the end of last month said the Lunn Poly judgment related only to travel insurance, and did not deal with assertions by Granada – chaired by Labour-supporting Gerry Robinson, and Thorn, owner of Radio Rentals – that the tax was also illegal for electrical retailers.
Mark Barry, Thorn’s deputy group director of taxation, said this week that the Customs briefing seemed ‘perverse’ and ignored the Lunn Poly case.
Simon Ager, a solicitor with Rowe & Maw who is acting for the two companies, said they were now considering legal proceedings against the government in the hope of getting the 17.5% rate declared illegal.
This, he said, could lead to substantial repayments of tax for both companies.
He added that they would also hope to obtain substantial damages for the harm the higher rate had done to their trade. Both companies argue they have been forced to make hundreds of redundancies and close shops as a result of the increased warranty insurance for consumer goods.
Ager emphasised a final decision has yet to be taken, but said both were considering lifting a stay on writs issued against Customs and the Attorney General last November.
Customs introduced the 17.5% IPT rate in April 1997 after concerns that electrical retailers and travel agents were avoiding VAT by ‘value-shifting’ onto insurance and warranty policies.
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